The Macroeconomics of Labor Markets

The Macroeconomics of Labor Markets
Dennis J. Snower
Advanced Studies Program, Kiel Institute of World Economics
April 2004
The Structure of the Course
Part 1 of the course provides an overview of empirical regularities in OECD labor
markets.
Part 2 deals with causes and consequences of inequality of earnings.
Part 3 examines the nature of organizational change in labor markets nowadays.
Part 4 summarizes the market-clearing theories of labor market activity under perfect
competition.
Part 5 investigates the influence of imperfect competition, in product and labor
markets, on labor market activity.
Part 6 focuses on market non-clearing theories, including efficiency wage and insideroutsider
theories.
Part 7 examines labor market dynamics.
Finally, Part 8 gives an overview of labor market policies.
Introduction: Empirical Regularities
*International Monetary Fund (1999), “Chronic Unemployment in the Euro
Area: Causes and Cures,” World Economic Outlook, ch. 4, Washington,
D.C, pp. 88-121,
http://www.imf.org/external/pubs/ft/weo/1999/01/0599ch4.pdf
*International Monetary Fund (2003), “Unemployment and Labor Market
Institutions: Why Reforms Pay Off,” World Economic Outlook, ch. 4,
http://www.imf.org/external/pubs/ft/weo/2003/01/pdf/chapter4.pdf
European Commission (2002) , Employment in Europe 2002, Employment and
Social Affairs, Brussels,
http://europa.eu.int/comm/employment_social/news/2002/sep/employment
_in_europe2002.pdf
Inequality
Gottschalk, Peter (1997), “Inequality, income Growth, and Mobility: The Basic
Facts,” Journal of Economic Perspectives, 11(2), Spring, 21-40.
Johnson, George E. (1997), “Changes in Earnings Inequality: The Role of
Demand Shifts,” Journal of Economic Perspectives, 11(2), Spring, 41-54.

*OECD, “Earnings Inequality, Low-Paid Employment, and Earnings Mobility,”
Employment Outlook, ch. 3,
http://www1.oecd.org/els/pdfs/EMPEMODOCA008.pdf
*OECD, “Earnings Mobility: Taking a Longer-Run View,” Employment
Outlook, ch. 2, http://www1.oecd.org/els/pdfs/EMPEMODOCA006.pdf
*Freeman, Richard B. (1995), “Are Your Wages Set in Beijing?” Journal of
Economic Perspectives, 9(3), Summer, 15-32.
Organisational Change
*Milgrom, Paul and John Roberts (1990) "The Economics of Modern
Manufacturing. Technology, Strategy and Organization", American
Economic Review, pp. 511-528.
*OECD, “New Enterprise Work Practices and their Labour Market
Implications,” Employment Outlook, ch. 4,
http://www1.oecd.org/els/pdfs/EMPEMODOCA019.pdf
Osterman, Paul (1994), “How Common is Workplace Transformation and Who
Adopts It?” Industrial and Labor Relations Review, Jan, 47(2), 173-189.
Holmstrom, Bengt, and Paul Milgrom (1991), “Multitask Principal-Agent
Analyses: Incentive Contracts, Asset Ownership, and Job Design,” Journal
of Law, Economics, and Organization, 7 Sp, 24-52.
Lindbeck, Assar, and Dennis J. Snower (1996), “Reorganization of Firms and
Labor Market Inequality,” American Economic Review, Papers and
Proceedings, May, 86(2), 315-321.
Market-Clearing Theories
*Ball, Laurence, and N. Gregory Mankiw, “The NAIRU in Theory and
Practice,” Journal of Economic Perspectives, 16, Fall 2002, 115-136,
http://post.economics.harvard.edu/faculty/mankiw/papers/nairu.pdf
Phelps, Edmund S., and Gylfi Zoega (1997), “The Rise and Downward Trend of
the Natural Rate,” American Economic Review, Papers and Proceedings,
May, 87,2, http://www.columbia.edu/~esp2/rise.pdf
*Blanchard, Olivier, and Lawrence Katz (1997), “What Do We Know and Do
Not Know About the Natural Rate of Unemployment?” Journal of
Economic Perspectives, 11, 1.
Imperfect Competition
Labor Unions
*OECD, “Economic Performance and the Structure of Collective Bargaining,”
Employment Outlook, ch. 3,
http://www1.oecd.org/els/pdfs/EMPEMODOCA005.pdf

Calmfors, L., and J. Driffill (1988), "Bargaining Structure, Corporatism, and
Macroeconomic Performance," Economic Policy, 6.
*McDonald, I., and R. Solow (1981), "Wage Bargaining and Employment,"
AER, 71, 1981, 896-908.
Labor and Product Market Competition
*Blanchard, O., and N. Kiyotaki (1987), "Monopolistic Competition and the
Effects of Aggregate Demand," AER, 77, 647-66.
Dixon, H. (1987), "An Imperfectly Competitive Model with Walrasian
Features," Oxford Economic Papers, 1987.
*Snower, D.J., and Assar Lindbeck (1994), "How are Product Demand Changes
Transmitted to the Labor Market?", Economic Journal, 104 (423), 386-398.
Market Non-clearing Theories
(i) Efficiency Wages
Akerlof, G. (1982), "Labor Contracts as a Partial Gift Exchange," QJE, 97, 543-
69.
*Calvo, Guillermo (1979), "Quasi-Walrasian Theories of Unemployment,"
American Economic Review Papers and Proceedings, 69(2), 102-107.
*Shapiro, Carl, and Joseph Stiglitz (1984), "Equilibrium Unemployment as a
Worker Discipline Device," American Economic Review, 74(3), 433-444.
Weiss, Andrew (1980), "Job Queues and Layoffs in Labor Markets with
Flexible Wages," Journal of Political Economy, 88, 526-538.
(ii) Insiders versus Outsiders
*Blanchard, Olivier, and Lawrence Summers (1986), “Hysteresis and the
European Unemployment Problem,” NBER Macroeconomics Annual, vol.
1, Cambridge, Mass: MIT Press, 15-77.
Lindbeck, Assar, and Dennis J. Snower (1989), The Insider-Outsider Theory of
Employment and Unemployment, Cambridge, Mass.: MIT Press, ch. 3,5.
*Lindbeck, Assar, and Dennis J. Snower (1999), “Insiders versus Outsiders,”
Journal of Economic Perspectives, Vol. 15 (1), Winter 2001, 165-188.
Labor Market Dynamics
Bean, C. R. (1994): "European Unemployment: A Survey," Journal of
Economic Literature, 32, 573− 619.
*Blanchard, Olivier (1997), “The Medium Run,” Brookings Papers on
Economic Activity, 2, 89-158, http://econwww.mit.edu/faculty/blanchar/files/files/medrun.pdf

*Karanassou, Marika, and Dennis J. Snower (1998), “How Labour Market
Flexibility Affects Unemployment: Long-term Implications of the Chain
Reaction Theory,” Economic Journal, 108, May, 1-18.
Labor Market Policies
*Blanchard, Olivier, and Justin Wolfers, “The Role of Shocks and Institutions
in the Rise of European Unemployment,” Economic Journal, 2000,
http://econ-www.mit.edu/faculty/blanchar/files/files/harry.pdf
Coe, D. and D. J. Snower (1997), Policy Complementarities: The Case for
Fundamental Labour Market Reform, International Monetary Fund Staff
Papers, 44, 1-35.
*Elmeskov, J. Martin J. P. and Scarpetta, S, (1998), “Key Lessons for Labour
Market Reform: Evidence from OECD Countries’ Experiences,” Swedish
Economic Policy Review 5, 3-50.
Nickel Stephen J., (1997), Unemployment and Labor Market Rigidities: Europe
versus North America”, The Journal of Economic Perspectives, 11 no. 3,
Summer, 55-74.
Saint Paul, G, (1996), “Exploring the Political Economy of Labour Market
Institutions”, Economic Policy, October, 265-315.